Wednesday, 14 March 2018

The famous handshake: It’s economics, stupid!

Uhuru and Raila During the Handshake
If Anhui Construction Company of China bids and wins the contract for the construction of the proposed second runway at JKIA, then, Economics will be the real reason for the Uhuru-Raila amity.  The company was the winner of the bid to construct the now moribund US$656 million Greenfield terminal at JKIA.
And that project was one of the two mega projects that Jimmi Wanjigi had brokered, the other being the Standard Gauge Railway.  Both projects slipped through his fingers during the Uhuru Kenyatta administration, a loss that so angered him that he swore to bring down the Uhuru administration. He thus threw his weight -and finances- behind Raila Odinga’s ODM becoming the financier.
 However, that was a bad gamble for all his efforts to bring down the Jubilee administration came to naught. And even as he funded “operation bring Jubilee down,” the administration was slowly tightening the noose around his neck.
For five years, he never brokered any significant deal, legally or otherwise. It was a prolonged drought for him. And since NASA- which he midwifed-never made it to State House, he faced another five years of drought-longer than even the biblical seven years of famine faced in Egypt during Joseph’s days.
 Raila on the hand had promised Jimmi some lucrative contracts, worth some Kshs 2.27 trillion. Among these are the airports expansion and housing projects. Failure to deliver on these, Raila was to reimburse Jimmi some Kshs10 billion used for his Presidential Campaign plus interest- money the former does not have. And since he was not the tenant at State House, he had no way of paying.
Any astute businessman cuts his losses by either letting go of unnecessary baggage or abandoning some projects.  
Jimmi chose to cut losses and do some business. And he said as much in his Twitter handle on March 10..Among other things, he said "Astute Businessmen have Permanent interests, not Permanent enemies"  A lot was at stake: All major constructions contracts in this country will be implanted during Uhuru’s tenancy at stake House. That meant that even if Raila won in 2022, there will be nothing left for Jimmi. He had to move fast. 

What a finer way than to force an amity that could pave the way for him to do business? Anarchy was draining his resources with no viable source to replenish them.

The second runway at JKIA is estimated to cost almost what the Greenfield terminal cost –in the upwards of US$500 million. A ten percent cut comes to US$50 million, a huge plug on the hole punctured by political campaigns- and that from only one project! Two more of that magnitude in the next five years and he would be back where he was, if not ahead. So why not let go and move on? Add a few housing projects to the bargain and the dividends of an armistice were mouth -watering.

The old adage goes, if you can’t beat them, join them. So JW the father of political patronage decided to follow his “permanent interest”- making money by embracing his old foe, Uhuru Kenyatta. Here, JW was smart.

All he needed was to order his troops “to ceasefire and offer the Olive branch.” The result: armistice! All guns silent. Suddenly everything that NASA stood for – Resist, Secession, NRM, People’s Assemblies, People’s President, evaporated. We are back to abnormal- No strikes, No street demos, no bloodshed, nothing. That is the abnormal Kenya.

 Only JW can achieve that, after all, he bankrolled the troops and all he needed was to call back his debt and they all go on their knees like the biblical slave. Jimmi is credited for cobbling together NASA, an amalgamation of disparate tribal chiefs glued together by their ambition to occupy the house on the hill. By cobbling them together, he hoped they can marshal sufficient numbers to oust the current tenant.
They failed and were likely to drag him down with them. And only he could offer them –and himself-a lifeline.
JW: When Police Paid him a courtesy call
 For Uhuru, such that was a heaven send opportunity he could not let pass. He has his Big Four agenda which he hopes will be his legacy particularly building one million houses and building roads and railways. The Ceasefire presented him with an opportunity to deliver on his promises with little disruption. So what the Heck. Shake the devil’s hand and get down to business!
To deliver on his promises, he needs even the devil to play his part. Some of these guys can mobilize resources from somewhere to do some of the projects. So why not let them do it? Astute presidents don’t have permanent enemies, only interests. Here was a congruence of interests, a proper fit. We are all Kenyans so let’s develop our country, let each bring his peg to do that. Bingo! An armistice was born!
 For the hustler, this was his game. Ever the schemer, the son of a peasant from Sugoi has his road to the House on the Hill paved with gold.  For the next five years, he shall traverse the country, cobble together his team without some hooligans throwing stones at him. It is his to lose.
 Where does that leave the country? The first thing to die was the exclusion mantra. Now infrastructure projects-  10,000 Kms of roads,  some 600Km of a railway line, ports, 57 water dams, one million new affordable houses, can be built anywhere in Kenya without political sabotage. Construction of infrastructure is one of the most inclusive investments. It not only creates direct jobs, it also removes barriers to personal and community development. All weather roads, for instance, bring far away markets near.
Businessmen make profits and create more jobs. So if the 10,000Km road network is developed in the next five years, they will create jobs for all and sundry. This is the time for us all to eat. Kenya may live to cherish that handshake at Harambee house last Friday for a long time as the economy picks the cue and steams ahead.
 Should we expect to hit 10 percent GDP growth rate by 2022?  Only time will tell. But don’t be surprised if you found yourself there.

Tuesday, 13 March 2018

Kenya's growth rate to hit 5.8 percent in Q1

Kenya's PMI March'17-March'18
Courtesy CFC Stanbic
The Kenyan economy will post a 5.8 percent growth rate by the end of March and continue the same robust trend to the end of the year, experts say.  
This comes after a lean eight months of 2017. The period between  March and November last year, Kenya experienced a lean period we can report. Drought, coupled with political rumbling in the run-up to the August 8th general election slowed economic activity in the country.

According to CFC Stanbic, the PMI index declined constantly since March 2017 when it read 48 until October when presidential elections were held. In October, it read 34.4, the lowest level in a long time. The decline in PMI mirrors the decline in economic activity in the private sector. No wonder many companies are issuing a profit warning. The decline in profitability has also hit tax- collection putting the government in the red.

 However, Kenya’s economic recovery has picked up the pace, international research groups say. The first pointer to the robust recovery is the PMI, the Purchase Manager's Index, which says that the PMI for February rose to 54.9, the fastest growth in 20 months.

 The PMI is a composite measure of economic performance month-on-month covering 400 firms in Kenya’s private sector. It measures a weighted change in such variables as; New Orders  which is  weighted at  0.3, Output  at  0.25, Employment at  0.2, Suppliers’ Delivery Times at  0.15, Stock of Items Purchased at  0.1
 A reading above 50 shows growth in economic activity while a reading below 50 projects a decline.
According to CFC Stanbic, Kenya’s PMI turned north after the October Presidential elections, rising from a seasonally adjusted reading of 34.4 in October to 42.8 in November before crossing the Rubicon in December to close at 53. Since then it has been on the rise settling at 54.9 in February.

 The report attributes the rise after eight months of decline to the end of the electioneering period and the swearing of President Kenyatta for his second term. The decline in the risk of violence opened the purse-strings both in Kenya and overseas resulting in rising demand for local goods.

The report does not project the future but its survey found some latent demand, an indication that the growth trajectory is here to stay. Even then, analysts say, that it points to a robust growth this year.
The Economist Intelligence Unit for instance, projects a growth of 5.3 percent this year which is in the range of projections by other analysts whose projection range from 5.3 to 6.0 percent.  The Economic Focus group predicts a growth of 5.3 this year.
Agriculture: suffered from prolonged drought
The trading Economics Group projects a quarterly growth rate of 5.8 percent in Q1; 5.5 in Q2; 5.6 percent in Q3, closing the year at 6.5 percent in Q4. In short, Kenya will post robust economic growth this year, marking a major turnaround from eight months of poor growth.
 The poor growth, caused by among others factors, the long drought which made agriculture’s fortunes lean, and uncertainty due to political rumbling ahead of the elections last year. The lean times resulted in many firms in the private sector, especially those listed on the Nairobi Stock Exchange, issuing profit warnings. Retrenchment was also reported in those lean eight months.

The overall effect was lower tax -collection for taxes are collected from year-end trading profits. Consequently, the tax collector, the Kenya Revenue Authority, missed its revenue targets, punching a hole in the government’s kitty for the current financial year, ending on June 31st. As at the time of writing, some civil servants are yet to receive their February salaries due to cash flow issues at the treasury. Counties are yet to receive their remission from the treasury.
The lean times are likely to continue until the end of the current financial year in June, though the recently floated Eurobond 2 is likely to save the situation. The money, however, was not meant to recurrent expenditure.

 Despite the lean times, however, analysts are upbeat that the economy will post a robust growth, create jobs and raise tax revenue targets. This is mainly because the economy is well diversified, meaning it does not depend on one sector for growth.
The ongoing construction of mega projects is said to be one of the sectors driving growth in Kenya.  An expected turn around in the Kingpin of the economy, “agriculture supported by good rains, and an upturn in investment should bump up growth this year,” says the Economics Focus group, a view supported by the AFDB in its Kenya’s outlook which projects a 5.6 percent growth rate this year.

AfDB expects the services sector to continue leading the growth because, Kenya is the hub of ICT, Financial and logistics services in East Africa. It states that the continued investment in Rail and roads and the construction of the second runway at Jomo Kenyatta International airport will be a short in the arm for economic performance this year.

Monday, 5 March 2018


Thika superhighway, almost sabotaged
by the West
Dear Sir,
 My Late father once told me; "He who cannot be advised by a child does not have him." This was after I overheard him telling his wife-my mother - how he spend the whole day running from one office to the next in a bid to transfer his businesses to his wives’ names. Why was he doing all that? She asked.
Because a transport company he was a shareholder had been found liable by a court of law and ordered to pay damages! The company had long collapsed. So my father, fearing that the claimants would attach the property of the shareholders rushed to transfer his businesses to his wives’ names so that once the auctioneers come calling, they will find nothing to his name.
Now the transport company was a limited liability and from my rudimentary understanding of commercial law taught in my secondary school business class, I knew my father was not liable. I told him as much. He did not believe me neither did he ignore my advice until my brother, an accountant, confirmed my advice two days later. Hence his comment, which has stuck in my head from those days, just a few months after we buried our first president, your father.
 It is in the spirit of my father's compliment that I write to you, this lengthy letter your Excellency.
 The recent IMF mission in Kenya is said to have insisted on two things: Raise Petroleum prices through taxation and two repeal the caps interest rates.
Bujagali: M7 ignored the World Bank
I must declare, Your Excellency, that I do not trust the Bretton Woods institutions. Neither do I trust experts from these institutions. But let’s stick to the institutions: It is my considered opinion that these institutions offer advice unsuitable for Africa. This is why some Presidents have rejected such advice and had the last laugh. Also,
Take the collapsed privatization of Kenya Railways. It was forced down our throats by IFC, a Bretton Woods institution. I am informed that local experts had reservations about the deal but were ignored because the higher ups wanted to look good in the eyes of these institutions.
May I remind you, Your Excellency, that back in 2010, IFC, the World Bank private sector lending arm, also withdrew from a deal to construct the Southern By-pass in Nairobi citing credibility issues on the part of one of the contractors. The withdrawal saw the collapse of the deal and the proposed construction of the Southern bypass until the Chinese stepped in.
Now we have a bypass that “has cut the travel time by three hours,” to quote you, Mr. President. The same institution, World Bank almost sabotaged the LTWP saying it could produce more power than Kenya needed. The project is expected to come on stream in August this year.  I doubt whether it will face a shortage of demand. Mr. President, I doubt whether you would be talking about the completion of SGR had you sought support from the West and particularly the Bretton Woods institutions.
 Remember Sir, that the proposal for the funding of Thika superhighway was doing rounds among the donors in the West for 17 years before AfDB, our own DFI came in. These are but just a few pointers why you should borrow a leaf from your neighbor, President Yoweri Museveni.
Sothern bypass Nairobi:
Almost sabotaged by IFC
Sir Fossil fuel l Price increases are inflationary, and a 16 percent increase in the face of rising oil Prices will spark off an inflationary spiral that would add to the fires of other inefficiencies such as drought that has seen food prices spin through the roof. Such an increase, given its permanent nature, will kill everything you have been working for because it will keep consumer prices permanently high. It will kill your “Big four agenda” because the cost of doing business will rise, confounding an already not so rosy situation.
Mr. President Sir, economic growth will bridge any tax-shortfalls in the short term. Work towards economic growth and allow Kenyans to spend their meagre income on local goods but not on oil products. 
Various credible researchers project this country’s growth to be in the upwards of five percent this year. At the current GDP level of $75 billion, a five percent growth would generate an estimated $800 million in taxes.  That compares unfavourably with the Carrot $700 million in tax-revenue attached to the IMF stick.
According to various credible researchers, the middle class in Africa is driving economic growth at home. It has enabled the continent to shrug off shocks in the world market. Kenya is no exception. Please do not kill the goose that lays the golden egg.
 The reason you sought a standby credit from IMF, was to protect the family jewels. Just like my father, it was a wise move, but unnecessary. But we are humans and we cannot accurately foretell the future. I submit that the said turbulence is well behind us and you do not need any more cover. In any case, the first standby facility, worth US$1.5 billion was never utilized.  The probability of another being utilized is remote given the current world economic circumstances.
LTWP: Almost sabotaged
 by World Bank
Your Excellency Sir, let us visit some numbers.
According to both the World Bank and AfDB, the world economy has turned the corner and is expected to grow by two percent this year. Africa is expected to do even better as the turnaround in the world Economy will raise commodity prices, thus favouring Africa. Kenya is one of those countries that are expected to drive growth in Africa.
 Credible researchers also indicate that the banking industry in Africa is the second most profitable in the world after Latin America with profitability rate of up to 24 percent.  Other banks in the world earn far less and they still exist and lend. Kenyan banks, the research says, will remain profitable at 20 percent if the interest rate caps are retained.
 I have asked why the price of money in Kenya does not respond to the general price theory and I have never been given a persuasive answer.  All I hear are vague verbosity about risk profiles. Even here, risky profiles are lower at low prices than at high prices. Your Excellency, the refusal to lend to SMEs is, but blackmail so that the industry retains is obscene profitability.
 The benefit of these difficult choices is dismal, a paltry $700 million added to our tax- kitty and a few happy extorting Kenyans in the name of profits.  The additional benefits, an insurance on BOP support should the need arise does not look necessary. Yet that big brother keeps off on matters brick and mortar- building roads, water dams, and energy generation! These are the sectors that drive economic growth and lower the Debt/GDP ratio. The projected GDP growth rate of five percent this year will generate an estimated US$800 million in taxes.
According to Leading Economic Indicators, a publication by our very own National Bureau of Statistics, at the end of December Last year, our net Foreign Exchange Reserves, were comfortable at US$5.3 billion. Our gross Forex Reserves stood close to US$ 10 billion over the same period. But foreign debt obligations took the rest. I am comfortable as things stand and I believe the country is. But of course, we expect you to keep the debts low. Perhaps, we should surcharge officials who squander public resources on travel and other avoidable expenses.
My understanding of the trends in the world economy as it stands is; we don’t even need the standby facility. We can do very well without IMF meddling in our business. Your Predecessor, Mwai Kibaki, Kept the Bretton Woods institutions at an arm’s length during his tenure. They did not like him. But we did, and that is what matters.

Please, Your Excellency, do not succumb to IMF’s wiles. Let them remain where your predecessor kept them- on the back burner. You will be in good company!

Wednesday, 28 February 2018

Kenya confounds critics, raises $2 bn Eurobond

 Work on Nairobi -Naivasha section of SGR

 Kenya last week shook off negative news about its economy to raise US$2 billion in the second issue of a Eurobond in four years.

 The initial bond issued in 2014, was also met with bad news following an attack by “Al-shabaab” in Mpeketoni, Lamu, where 100 people were killed. The attack was seen in some quarters as an attempt to sabotage the issue, coming the day the issue opened.

The Market shrugged off the bad news bidding $8 billion. This time around, the country shook off a downgrade of the bond by Moody’s and the withdrawal of a standby facility by IMF. The recent issue was oversubscribed seven times, with bids totaling US$14 billion. There is also a feeling that the bad news was also designed to sabotage this issue.

 The success of the second issue has critics scrambling for metaphors.  if they had the sabotage of the second issue on the bad news, then they must be a disappointed lot. And now, they are harping on the country's alleged indebtedness to safe face. 

LTWP power station: Funded entirely by debts
The bad mouthing that characterized the first issue is also common with the second. The 2014 issue has been dogged by allegations of wrongdoing, with an allegation that US$1 billion was actually stolen. No evidence was ever provided to support the allegations. But the allegations continue. The second issue is being criticized for adding to the country’s debt burden.

The shake-off is a reflection of the horizon perspectives between traders and investors. Traders count the profits at the end of the trading day. Investors have a longer-term view, looking at the rate of return over a longer period rather than the difference between purchases and sales at the close of business daily.
 Investors have shaken off fears about the debt-to GDP ratio approach which traders are worried about. The ratio, which according to anti-debt activists is 54 percent, is said to be headed towards unmanageable levels.
Investors do not think so. They heard that before. The question is: how do the economic fundamentals look like? They are firm and looking good. Where will the money go? To be invested in infrastructure. Infrastructure is enablers of economic growth. That is it! The future looks bright.

But the Debt-to GDP ratio is still causing concern. However, there are two ways of lowering it: Fast economic growth while holding the debt levels low or cut borrowing and allow slow or static economic growth rate.

 Kenya has chosen to borrow to hasten economic transformation and set the stage for fast growth in the future through borrowing. Borrowing is bringing the benefits of future earnings to the present. 
 Kenya's borrowing  is anchored on her long-term development strategy whose aim is to create a “Globally competitive and prosperous country with a high quality of life by 2030.”   The idea is to shift the supply curve outwards to a new level of increased goods and services. That is, expand and diversify economic activity. Kenya’s GDP is expected to hit $120 billion by 2025, almost double the current level. That level will not be achieved unless the current bottlenecks are removed.

 Currently, agriculture, the driver of the economy is not operating at full potential. The manufacturing sector is also reeling under the weight of heavy costs. These inefficiencies are blamed on poor or insufficient infrastructure- energy, transport infrastructure, water, you name it.

This means massive investment, especially in infrastructure- and infrastructure is expensive. The country cannot provide the needed infrastructure from our tax revenue, even if a huge chunk of it went to infrastructure.

In fact, the current budget proposal gives the Ministry of transport, infrastructure, and housing Lion’s share of the budget in the coming financial year and probably beyond. And this will not be enough to build 10,000km of roads, seaports, airports, railway lines, water dams, and homes! That means some money has to come from elsewhere. There are only two options: bring in the private sector through PPP or borrow from them to invest.

 Given that investors have no stomach for sunk capital risk in areas such as generating geothermal power, the government has to take the risk and that means borrowing funds to sink in developing such sources. Borrowing from bilateral and multilateral lenders is almost out of the question for a country in a hurry to develop. The resources are not available from these sources because they also face budget constraints.
Smooth  and faster roads: Funded by debt
 Africa’s multilateral lender, AfDB, in its 2018 African Economic Outlook encourages Africa to tap into the US$100 trillion in savings held by Institutional investors and Commercial banks. Among the instruments it recommends is sovereign borrowing and PPPs.

To be sure, it cautions against creating personal monuments- projects that have no potential economic benefit but are politically palatable. And that is what everyone should be fighting against. It calls on Africa to invest in profitable Infrastructure to transform and industrialize Africa. It lists investment in the order of priorities as Energy, transport infrastructure and water. These are also the priority projects in Kenya.

So what is wrong with borrowing? Nothing! If invested in productive projects. Is there any evidence that borrowed funds have been wasted? We are yet to see it.  But we see goods roads, increased power supply, new railway lines and rolling stock, improved harbours, and water dams. Critics need not look far, Thika Highway was funded by debt, we are enjoying jam free rides. The Lake Turkana wind power project, worth US$786 million was funded entirely on debt. Come August and the project will add some 310 Mw in the national grid and, given its large size, we could soon see lower electricity bills. All these are infrastructure that enables economic prosperity as they cut the cost of doing business and create more jobs.
Therefore the question of not being able to repay the debts once the projects are up and running does not arise. The major concern should be that the projects are completed in time so that the country can enjoy the envisaged benefits and help repay their debts.

 The Standard Gauge Railway between Mombasa and Nairobi was completed 18 months ahead of schedule and the Nairobi- Naivasha section will be completed three months ahead of schedule. This eliminates cost-overruns and at the same time gives the country a bonus. The Nairobi Mombasa line has been operational for eight months now. This is because the funds are available and ring-fenced for the projects. Those funds were made available by borrowing.

Tuesday, 13 February 2018

Africa’s yawning gap in investment in infrastructure

Lake Turkana windpower station
Africa needs to spend a total of US$ 130-170 billion a year over the next seven years on productive and profitable infrastructure projects, says the Africa Development Bank. The expenditure in order of priority is US$ 35-50 billion on energy, $35-47 billion on transport, and $55-66 billion on water and sanitation.  Of the total capital needed, some $65 billion is already committed by governments and donors. That leaves a yawning gap of $68-108 billion dollars.

 The funds are out there in the world market awaiting into Africa’s productive infrastructure in order to industrialize, create jobs and enable inclusive development and dent the poverty rate.  Institutional investors and Commercial bank and sovereign fund managers are sitting over US$ 100 trillion, a small proportion of this huge savings is need to develop Africa’s infrastructure.

  A Solar Power farm
 All Africa needs is to craft bankable resource Mobilization strategies to fill this yawning gap. The continent, therefore, needs to dust off funds mobilization strategies.These include; Private-Public Partnerships and Foreign Direct Investments and bankable debt instruments.  Such attractive strategies would make Africa a major destination for investments funds.  And the economic prospects in the continent are mouth-watering. The middle class in the continent is growing and driving domestic demand for goods and services.

In fact, says AfDB, the growing middle class is part of the factors that insulate African economies from external shocks. The continent has proven resilient to external shocks, posting robust growth rates amid declining fortunes elsewhere. It is this growing middle class that is driving the growth in tax collection because it is driving demand for local manufacturers making them profitable tax-payers. This has seen tax collection in Africa rise to US$500 billion a year, elbowing out donor funding which stands at US$50 billion, below remittances which stands at $60 billion. Africa is thus a ready market for infrastructure services and a high return market for investment in such services.

 But why, given the huge tax revenue does Africa need investors in infrastructure, why not devote more funds to infrastructure? Simple, there are more competing demands for the limited tax revenue. Therefore, more funds are needed targeting infrastructure development. The resources should be preferably ring-fenced to develop infrastructure.
Entebbe Expressway Uganda: Easing travel time

AfDB prioritizes energy because of its huge economic potential. More than 640 million Africans have no access to energy, giving an electricity access rate for African countries at just over 40 percent— the world’s lowest. Per capita consumption of energy in Sub-Saharan Africa is 180 kWh, against 13,000 kWh per capita in the United States and 6,500 kWh in Europe. Further, access to energy is crucial for reducing the cost of doing business, unlocking economic potential and creating jobs.

Africa’s energy potential, especially renewable energy, is enormous, yet only a fraction is employed. Hydropower provides around a fifth of current capacity, but not even a tenth of its potential is utilized. Similarly, the technical potential of solar, biomass, wind, and geothermal energy is huge.  What is lacking is a pipeline of bankable projects which can attract foreign investors.
 JKIA Nairobi: EaSing international travel

The ball is now in Africa’s court to structure debt instruments to tap into that huge pool. The structuring should be geared towards attracting private investors into the actual development of certain infrastructure projects. Wind and solar are emerging as quick to install sources compared to say, geothermal energy, which takes decades to develop fully.

 But why prioritize investment in physical infrastructure? Unlike other socials investments such as in health and education, infrastructure directly affects productivity and output in the short-run. Increased output in electricity generating capacity will not only raise the stock of energy generating plants, it also part of GDP formation and as an input to the production function of other sectors. Increased availability of electricity will reduce power rationing, thus eliminating the need to invest in standby generators by manufacturing plants. This cuts the productions costs by enabling a more efficient use of conventional productive inputs.

Modern transport systems could increase manufacturing competitiveness cheaply and quickly, moving raw materials to producers and manufactured goods to consumers. Investment in transport infrastructure compliments investment is energy by opening up the market for the goods produced in the continent and cut the cost of doing business. And the resulting growth creates demand for employees thus reducing unemployment and poverty levels.
An SGR line: Easing bulk transport due to high speed

 However, African governments must now start weaning themselves from the provision of all infrastructure.  They must begin to charge the market price for Infrastructure services such as water, electricity, and road tolls. Such payments will ensure that there is enough money to repay the debt, a return to investors and foot maintenance costs thus easing the burden on the government budget. Dependence on tax revenue leads to decaying due to a limitation of funds.

Studies show that other infrastructure sectors are also profitable with IRRs ranging between 16 percent and 25 percent. Thus they are a good candidate for private sector investment providing a source of stable income flows in the longer term.

 Studies also show that  Capital markets in Africa are vibrant and sufficiently sophisticated to mobilize funds for infrastructure projects. Funds managers out there are you listening?

Wednesday, 24 January 2018

Will Total's entry into Kenya Kill Hoima-Tanga Line?

Alternative Route Map: Which will it be?
 The French- Oil Major, Total SPA, has finally been allowed to buy the 25 percent stake held by Maersk Oil exploration international in Lokichar oil fields in Kenya.
 But to get the government’s nod, Total Spa had to “commit itself to the export of Kenyan oil through the Lokichar -Lamu oil Pipeline only.”  That is a major retreat from Total’s position stated last August that it will lobby Kenya to evacuate her oil through the Tanzanian Port of Tanga.
Total SPA, remember, engineered Uganda’s change of mind to evacuate its oil through Tanzania.  The shift, which tossed out of the window an earlier MOU between Kenya and Uganda to evacuate their crude through Lamu Port, soured diplomatic ties between Kenya and Tanzania.
The shift also caused a fall-out between Tullow Oil and Total SPA which ended with Total elbowing Tullow out of Hoima oil fields in Uganda.  Given these circumstances in Kenya, Total was entering into an already toxic market.
It had to tread carefully in Kenya.  Apart from the toxic relationship it had created, Kenya’s Oil Pipeline is an integral part of the Lamu Port- Ethiopia- South Sudan development corridor, LAPSSET. On that score alone Kenya would brook no compromises. Further, it had firm agreements in place. One, the Kenya government had already entered into a Joint venture agreement with the previous set of Oil explorers, which included, Tullow Oil, Africa Oil, and  Maersk to build the oil Pipeline to the proposed Lamu Port.
Two, the JD had already contracted the feasibility study that involves the Front End Engineering Design-FEED. Three, Kenya’s contract with the explorers includes a clause that allows Kenya to acquire a 33 percent stake in the Oilfield once found to be commercially viable. In pursuit of this clause, Kenya is preparing to float the Kenya National Oil Corporation’s stake in Nairobi and London stock Exchanges to raise US$1 billion to buy the stake next year.
That means that Total SPA’s 25 percent stake will be diluted further to about 14 percent, leaving Tullow oil, which owns 50 percent stake and National Oil Corporation as the majority stakeholders. The purchase by Kenya National Oil Corporation makes it difficult for Total Spa to use its financial muscle to bulldoze its will.
Total’s sensitivity on the toxicity of the Kenyan market was demonstrated by the fact that, the CEO, Patrick Pouyanne, whose comments last August was deemed reckless, kept out of the meetings that won Kenya’s nod. Instead, they send Momar Nguer, the President for marketing and services to secure the agreement. Momar Nguer was for a long time the MD of Total oil Kenya.
Where does Total’s “commitment” to Lokichar- Lamu Pipeline leave the proposed Hoima-Tanga Pipeline? Hanging in the balance, analysts say. In Kenya, Total will share the cost of building the US2.1 billion pipeline with its partners in a deal that is already firmed. At the most, she will cough US$500 million. 
In contrast, the company was to foot Lion’s share of the bill, if not all of it- a whopping US$3.5 billion- of the Hoima-Tanga Pipeline.  Will Total SPA choose to cut its losses and turn to the original Hoima-Lokichar- Lamu route? Hoima in Uganda is 500 Km from Lokichar in Turkana county, Kenya.
To export Kenya’s Oil through Tanga would have meant building a 500Km pipeline westwards to Hoima from Lokichar basin, and abandoning the 880Km Lokichar-Lamu section. Following the same Logic, Uganda’s oil could also be exported from Hoima to Lamu and abandon the Hoima- Tanga section. Uganda, it must be noted, is only interested in exporting her oil at the least cost. Could a price-war between Tanzania and Kenya ensue? And can Tanzania win on this score? Tanzanian offered to charge Uganda US$12.20 per barrel transported through her territory. Can Kenya offer a better deal? That remains to be seen.
Despite assurances that the Hoima-Tanga Pipeline will not be affected by Total’s entry into the Kenya Oil sector, that sounds hollow. It looks like payback time for Tanzania.  And Total engineered the second round of trouble for the Pipeline!
The deal itself was a misnomer. Total Oil has no interest in Tanzania at all having found no oil for its Licenses.  The shift to the Tanzanian route so angered Tullow Oil, the firm that discovered oil in Uganda back in 2006, that she sold her stake to Total Spa. But the sale is not a done deal since Total has yet to pay the full US$900 million tag.
Will Tullow buy back its stake in Uganda? Perhaps. Times have changed. Tullow is no longer fighting for survival. Rising Oil prices have made it possible for her to borrow. So far she has secured a US$2.25 billion war chest to fund further exploration.
Two, Tullow will stake a claim on 50 percent of the US$ 1 billion Kenya will pay for a piece of the pie in Lokichar Oilfields. And even if they share equally at 33 percent, Tullow’s war chest will still be enough to power her way back into Uganda. If she does, say analysts, she will force a return to the original plan to evacuate Hoima-Oil through Lokichar in Kenya to Lamu port.
 The prospects for the Hoima-Tanga pipeline no longer look bright. A cloud is building on the horizon, which could condemn it. A school of thought has it that Total can still salvage the Hoima- Tanga Pipeline by completing the Kenya deal, the shop for a buyer of its stake and stick with Hoima Oil Fields where she is a majority stakeholder

An Oil Pipeline under construction
. Whether that works remains to be seen.
 In the meantime, the Kenya-Tanzania diplomatic relations will continue to be frosty.  If there is a second change of heart which favours Kenya, the relations could get worse. 
Tanzania has lost once before to Kenya on a mega-infrastructure project, the SGR project. Despite her spirited efforts to lobby Uganda away from Northern Corridor to Central Corridor, business dictats overruled the political dalliance.  Technical evaluation of the proposal to shift Uganda’s SGR to Central Corridor through the Dar-Salaam Port found it unviable.

 Will another technical evaluation find the Hoima- Tanga Pipeline also unviable? We cross our fingers. Should that happen, it will be President Magufuli’s lowest moment. 

Friday, 19 January 2018

Politicians in east Africa lead in scandalmongering

 Presidents:  Magufuli and Museveni:
 Friendship or deception?
 Politicians in East Africa, lead in scandal Mongering, we can report. 
They willfully distort facts to support fake corruption claims.  This is a malicious bid to sabotage government projects; bully “stubborn Officials” into submission and/or get contracts for their cronies or for themselves, we can report.
A survey of the most berated projects between 2015 and 2017 has established that the corruption claims were fake, driven by malice and selfish political goals.

In all cases surveyed, the allegations of corruption provided no concrete evidence and no one was ever prosecuted.  Instead, technical reviews established cases of malice and vendetta. There was no evidence of sincerity on the part of the critics either. The alleged cases were prosecuted in Press conferences and public rallies.

Four issues emerged in our survey to explain the fake reports: Protection of personal interests threatened by certain developments; tender brokerage, witch hunt, and Propaganda aimed at sabotaging the projects for political gain. In some cases, it was a combination of all four.

To achieve their nefarious goals, the scandal mongers alleged rip-off in the projects.  Among the leading scandal mongers in the region are President John Pombe Magufuli of Tanzania, Raila Amolo Odinga, the veteran oppositionist in Kenya and the Ugandan Parliament.

The three individuals and institutions publicly made claims of corrupt deals which turned out false. Among these is the cost of infrastructure projects such as the standard Gauge Railway from Mombasa to Kampala, highways, water dams and Oil Pipelines. All allegations were designed to sabotage the projects for political and malicious goals.

In 2016, Kenya’s opposition doyen claimed that half- of the US$2 billion raised in a Eurobond borrowing in 2014 was stolen. It was even alleged that the Federal Reserve, the Central bank of the US, helped hide the money. An investigation established that the money was transferred to the Central of Kenya’s account at the Fed.

Even the Controller and Auditor General undertook a mission to the Fed and is yet to publish his findings more than a year later. Investigations established Zero evidence of theft and the file closed. It was noted that the Eurobond, floated in the Irish stock exchange on June 14, 2014, hit the market on the same day that the Somalia based terror group, Al-shabaab, slaughtered over 100 people in Mpeketoni, in Lamu County, Kenya.

Analysts then suspected that the terror attack was designed to sabotage the Eurobond, by projecting Kenya as insecure. The market oversubscribed the bond by 400 percent.

In Uganda, a parliamentary Committee almost grounded the Standard Gauge Railway project by alleging massive rip off. The Parliamentary Committee on Infrastructure, headed by Dennis Sabiti, wrote a malicious report about Uganda’s SGR.  The committee alleged that the $2.3 billion tab for the  273 Km Malaba-Kampala section was a rip-off citing Ethiopia which had completed a 760Km line of just about the same amount.

The Tanzanian president, relying on this report, tried to talk the Ugandan President into re-routing the line from Mombasa to Dar-Es-Salaam through the Central Corridor. Magufuli willfully misled the Ugandan President, alleging that the Northern Corridor SGR was a rip-off as the Tanzanian line was cheaper.
This was in a bid to shore up his own line which is deemed unviable. The region to be served cannot generate sufficient freight tonnage to make the line viable. All countries, to be served, Including Tanzania, Burundi and Rwanda can generate only 8.5 million tones in line whose capacity is 17 million tones a year. Uganda’s freight, on the other hand, is 10 million tones a year, a mouthwatering prospect for the DIKKM.
Raila Odinga: Leading scandal
Monger in kenya

Picking the cue from the President, the contractors building the Tanzanian line- Turkey's Yapi Merkezi Insaat VE Sanayi As and Portugal's Mota-Engil Engenharia- also tried to get Museveni to give them the deal.

 However, evidence emerged of vendetta on the part of Mr. Sabiti.  The Politicians had an ax to grind with the Works Permanent Secretary. The PS has refused to fund the Parliamentary Committee’s two- week benchmarking trip to Ethiopia, Kenya, and China, irking the Politicians who paid him back by bad mouthing the project.  

Further, it emerged, the Northern Corridor Railway is superior to Tanzanian and Ethiopian lines. It also emerged that, no matter who constructs the line, the cost cannot be lower given the Ugandan terrain.  The Tanzanian and Ethiopian lines were cheaper because apart from being inferior, they also were upgrades of an old line, were constructed on a relatively flat terrain and had fewer or no bridges. 

 Bridges form 30 percent of the cost of constructing a Railway line and Uganda will have 27 Km of bridges. Those findings discredited the Parliamentary report and President Museveni stuck to the Kenyan link.

The same malicious tongue lashing was evident in the 51 Kilometre Kampala-Entebbe expressway. The road was branded the most expensive highway in the world by Uganda’s Parliamentary committee on statutory Enterprises, COSASE. The Committee wondered how a kilometer of Road cost $9.3 million and ordered the review of the same. 
The expressway is a four-lane expressway that boasts 19 fly-overs and bridges measuring 2.77 Kilometres. It also boasts of the 1.4-kilometer Nambigirwa Bridge, the longest four-lane bridge in Uganda and East Africa. The US$497 million expressway, is thus 206 kilometres of road on a 51 kilometre stretch. Consequently, its cost is US$2.4 million per kilometer which is the standard price for such roads elsewhere.

In Kenya, the Standard Gauge Railway line from Mombasa to Nairobi faced severe criticism regarding its cost. Some politicians even suggested that US$1 billion was stolen from the project thus inflating its cost.  It emerged later that the politicians, all members of opposition party, ODM, were funded by a tenderpreneur who lost the bid to get his chosen contractors build the line on a PPP basis.
Anne Waiguru: Lost her job to scandalmongering
The same tenderprenuer was also behind the Eurobond saga, paying the same politicians to dispense fake reports. He was also behind the NYS scandal which alleged massive theft of public funds. However, the parliamentary Public Account Committee could not even put a finger of the amount stolen and the culprits, calling instead of the investigative agencies to investigate an Officer.
Emerging evidence suggests that the committee, headed by Opposition MPs, was working to cover-up the lies spread by their leader. The Party itself leads a corruption tag team in Kenya.

The SGR line is already complete and operational. It has lived to its expectations of cutting travel time between Nairobi and Mombasa to four hours for passenger train and 8 hours for the freight train.
However, freight truck owners, some of them, politicians, are crying for their business is at stake: One fully loaded train puts 300 trucks off-the-road while a fully loaded 20-car passenger train puts 56 buses off the road.
The lesson from our research is: the media was taken for a ride as it parroted the allegations without interrogating them. They never questioned the experts, that is, the people implementing the project and asking to see the design documents and the contract agreements.

Short of this, the media helps politicians and corrupt businessmen to sabotage projects that would otherwise benefit our countries. We help condemn our countries- and ourselves - into a state of perpetual under development in the name of fighting corruption.